Sequoia Capital, a venture capital firm, gave partners the assurance that it had conducted a thorough investigation before investing in FTX and had discovered that the exchange generated $1 billion in revenue and $250 million in operational income.
Sequoia Capital, a venture capital firm, said in a letter to its partners on November 10 that it had written down to $0 and declared a full loss on its $213.5 million investments in FTX and FTX US.
The letter argued that FTX’s exposure to the exchange is “limited” in its Global Growth Fund III, where the cost basis for the FTX share of the fund was $150 million, despite the fact that the crisis affecting the company has “generated a solvency risk.”
Sequoia told its investors that the fund wouldn’t suffer from the writing down of FTX, noting that it represented less than 3% of the capital committed to it, and adding:
“The $150M loss is offset by ~$7.5B in realized and unrealized gains in the same fund, so the fund remains in good shape.”
As part of FTX’s $900 million Series B investment round in July 2021, Sequoia made investments in the now-cash-strapped cryptocurrency exchange. At the time, this was the largest crypto investment ever documented.
Sequoia told its partners that it thoroughly investigates each and every investment with due diligence, and FTX was no exception.
“At the time of our investment in FTX, we ran a rigorous due diligence process. In 2021, the year of our investment, FTX generated approximately $1B in revenue and more than $250M in operating income.”
“We are in the business of taking risk. Some investments will surprise to the upside, and some will surprise to the downside,” the letter explained.